WASHINGTON -- The option to allow taxpayers to split their refunds between different accounts has increased the risk of fraud, according to a new report released publicly today by the Treasury Inspector General for Tax Administration (TIGTA).

In Calendar Year 2011, more than 842,000 taxpayers took advantage of this “split refund” option, which the Internal Revenue Service (IRS) first offered in 2007. They may split their tax refunds between two to three different checking or savings accounts using Form 8888, Allocation of Refund (Including Savings Bond Purchases). However, TIGTA found that more than 65,300 bank accounts had multiple direct deposits, accounting for more than 949,000 refunds for approximately $1.6 billion.

Auditors found that current IRS processes to ensure the accuracy of direct deposit information are not sufficient, which increases fraud potential. Additionally, the option to split a refund between multiple accounts increases the risk of fraud.

“This is troubling,” said J. Russell George, Treasury Inspector General for Tax Administration. . “The IRS’s current practice of allowing direct deposits to be made to multiple accounts increases the potential for fraud and abuse,” he said.

TIGTA identified more than 4,400 bank accounts listed on tax return preparers’ personal tax returns that had multiple direct deposits. More than 202,000 refunds for more than $309 million were sent to these bank accounts. This raises a concern as to whether tax return preparers are diverting clients’ refunds or portions of refunds to their own bank accounts to pay tax preparation fees or for other reasons.

TIGTA also identified more than 200 bank accounts listed on IRS employees’ tax returns that had multiple direct deposits. More than 10,600 refunds for more than $14 million were sent to these bank accounts.

The overall objective of this audit was to evaluate the IRS’s controls over the direct deposit of refunds.

TIGTA recommended that the IRS establish controls to identify tax return preparers and IRS employees who potentially divert direct deposits to their own bank accounts. In their response to the report, IRS officials agreed with the recommendation and plan to take appropriate corrective actions.

Note: The difference between the date TIGTA issues an audit report to the Internal
Revenue Service and the date TIGTA publicly releases the report is due to TIGTA's internal review process to ensure that public release is in compliance with Federal confidentiality laws.

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